Houston Estate Planning and Elder Law Attorney Blog
One of the colossal failures in estate planning I witness when people make their wills is not coordinating the will with the overall beneficiary designations they have chosen.
Does your will surpass your beneficiary designations on financial accounts?
A recent Wall Street Journal article, titled "How People Undermine Their Own Written Will," explains that most people believe that their written will take priority and supersedes the beneficiary designations on their investments. This isn't true. When you designate a beneficiary on a life insurance policy, a 401(k) plan, or an IRA—that is a binding contract. The basic tenants of contract law apply just as it would in a mortgage or a sale. What this means is that if you stipulate in your will that you want to leave your IRA to your brother and the beneficiary designation form of your IRA says that it is all supposed to pass to your sister, then your brother is out of luck. Despite your explicit instructions in your will, the IRA will go to the named beneficiary.
Most of the beneficiary designation forms in use today provide for listing a primary beneficiary as well as a contingent beneficiary. This gives you plenty of options to map out your estate. It is important to have a conversation with a qualified estate planning attorney when you are creating your will and other estate planning documents. The original article cautions us that each state may have different rules and your attorney will ensure that your documents are correct so your wishes are carried out as you intended.
Marriage, birth of child, divorce, re-marriage, child adoption, a new job—all of these life events and many more should motivate you to consider the thoroughness and current condition of your will preparation and beneficiary designations. Do not let your loved ones be surprised and disappointed by the realities of probate and contract law. Set up your beneficial designations and your will with the guidance of an experienced estate planning attorney.
Reference: Wall Street Journal (September 24, 2014) "How People Undermine Their Own Written Will"